Spanner in the Works? Judicial Challenge to the Finance Act, 2017

As soon as the details were disclosed, the Finance Bill, 2017 raised eye-brows[1] . Some noted that:

To minimise the number of tribunals, the Finance Bill, 2017 sought to merge eight tribunals with other tribunals and amended provisions relating to the structuring and re-organization of such tribunals.

The above measures were sought to be taken through a money bill, which is only supposed to contain provisions for imposition of taxes and withdrawal of money from the State Treasury.

The Process

The Finance Bill, 2017 received Presidential Assent on 31 March 2017 becoming the Finance Act, 2017. The Ministry of Finance notified that the relevant provisions regarding the merger of tribunals would come into force on 26 May 2017.

Subsequently, in exercise of the rule-making power conferred by the Finance Act, 2017, the Ministry of Finance also notified the rules which would govern the appointments, tenure and other condtitions of service of chairpersons and members of the merged tribunals.

As a result of the above exercise, the Competition Appellate Tribunal (COMPAT), which until recently was the primary appellate authority for decisions from the Competition Commission of India (CCI), was merged with the National Company Law Appellate Tribunal (NCLAT)[2].

Soon after the notification of the Finance Act, 2017, media reports suggested that it raised concerns about the separation of powers and the independence of the judiciary in certain areas. A judicial challenge seemed to be in the works.

The Challenge

The challenge arrived in the form of a writ petition filed in the High Court of Madras[3] by the Madras Bar Association, an association of lawyers which has considerable experience in advocating such causes. The Ministry of Finance and Ministry of Law have been impleaded as respondents.

The primary contentions laid down in the writ petition are as follows:

Section 156 to 189 (the relevant provisions regarding the merger of tribunals) of the Finance Act, 2017 are ultra vires Article 14, Article 50 and Article 110 of the Constitution of India (Constitution).

The Conditions of Service Rules are unconstitutional as they violate the principles of separation of powers and the independence of the judiciary, which form part of the basic structure of the Constitution.

Significantly, the petitioners also submitted that the impugned provisions of the Finance Act, 2017 and the Conditions of Service Rules are contrary to certain directions issued by the Supreme Court in Union of India v R Gandhi[4] when hearing a similar challenge regarding the establishment of the National Company Law Tribunal and the NCLAT.

Further, the petitioner contended that the passing of the impugned provisions in the Finance Act, 2017 as a money bill constitutes “colourable exercise of power”.

The matter reportedly came up for hearing at the High Court of Madras. A notice has been issued to the Central Government and next hearing is scheduled for 27 June 2017. No interim orders have been passed by the High Court of Madras, as yet.

Key Takeaway

A potential stay could have complicated things immensely, given that the merged tribunals are now functioning and the old tribunals have already been dissolved.

However, it is interesting to note that a similar challenge to the constitutional validity of the provisions of the Competition Act, 2002 on the grounds of separation of powers and independence of judiciary is also pending challenge before the High Court of Delhi[5].

As the institutions enforcing the Competition Act, 2002 face judicial challenges, it will be imperative for the Central Government to ensure that the above judicial challenges are met appropriately so as to further the cause of justice with minimal interference with the on-going functioning of the authorities.

Partner in the Competition Practice at the Delhi Office of Cyril Amarchand Mangaldas. Rahul focuses on competition law, trade law and technology as well as media & telecommunication. He routinely advises on issues relating to behavioural/ enforcement matters, merger control provisions as well as anti-dumping, international trade and WTO laws and the Information Technology Act and its rules. He can be reached at rahul.goel@cyrilshroff.com

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